<PAGE> 1
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 10-Q
----------
[X]Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended September 30, 1996
or
[ ]Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from ___________ to ___________
Commission file number: 0-25900
REPUBLIC ENGINEERED STEELS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 52-1635079
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
410 OBERLIN ROAD, S.W.
MASSILLON, OHIO 44647
(330) 837-6000
(Address, Including Zip Code, and Telephone Number, Including Area Code
of Registrant's Principal Executive Offices)
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
The number of shares outstanding of each of the issuer's classes of common
stock, as of November 8, 1996: 19,706,578 million
===============================================================================
<PAGE> 2
PART I. FINANCIAL INFORMATION
------
ITEM 1. FINANCIAL STATEMENTS
REPUBLIC ENGINEERED STEELS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
THREE-MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Net sales ............................................................... $ 183,421 $ 183,005
Cost of product sold (including depreciation
of $6,466 and $4,011 for 1996 and 1995) ............................. 170,519 164,666
------------ ------------
Gross profit ....................................................... 12,902 18,339
Selling expenses ........................................................ 2,595 2,671
General and administrative expenses ..................................... 8,909 9,205
Postretirement benefits charges ......................................... 4,319 4,080
Non-cash ESOP charges ................................................... 7,928 8,191
Other charges (credits), net
Interest expense ................................................... 6,669 6,661
Capitalized interest ............................................... -- (4,126)
Interest income .................................................... (122) (158)
Miscellaneous, net ................................................. (138) (220)
------------ ------------
Loss before income taxes ................................................ $ (17,258) $ (7,965)
Income tax benefit ................................................. 6,903 3,186
------------ ------------
Net loss ............................................................... $ (10,355) $ (4,779)
============ ============
(Net loss) per Common Share
- ---------------------------
Primary ................................................................. ($.53) ($.24)
Average shares and share equivalent outstanding ......................... 19,706,578 19,902,592
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 2 of 13
<PAGE> 3
REPUBLIC ENGINEERED STEELS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND JUNE 30, 1996
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS 9/30/96 6/30/96*
--------- ---------
(unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents ............................................................ $ 9,531 $ 2,074
Receivables, less trade receivable allowance for doubtful accounts of $1,635
(unaudited) at September 30, 1996 and $1,948 at June 30, 1996 ...................... 71,018 76,712
Inventories .......................................................................... 165,097 163,426
Deferred income taxes ................................................................ 9,184 10,639
Other current assets ................................................................. 2,810 2,052
--------- ---------
Total current assets ............................................................... 257,640 254,903
Property, plant and equipment, net ...................................................... 324,264 331,079
Intangibles and other assets, net ....................................................... 30,605 31,097
Restricted cash ......................................................................... 2,279 2,250
Deferred income taxes ................................................................... 29,606 21,248
--------- ---------
Total assets ....................................................................... 644,394 640,577
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current liabilities ................................................................ 112,503 112,723
--------- ---------
Total current liabilities .......................................................... 112,503 112,723
--------- ---------
Long-term debt, excluding current maturities ............................................ 284,252 280,956
Postretirement benefit obligation ....................................................... 116,973 113,169
Defined benefit pension obligation ...................................................... 20,993 21,601
Accrued environmental costs ............................................................. 19,005 19,605
Other liabilities ....................................................................... 3,551 3,550
Deferred income taxes ................................................................... -- --
--------- ---------
Total liabilities .................................................................. $ 557,277 $ 551,604
Special preferred stock, $.01 par value, one share authorized, one
share issued, liquidation value of $1,500 ............................................ 2 2
Common stock, $.01 par value; authorized 27,000,000
shares; issued 19,707,923 shares ..................................................... 197 197
Additional paid-in capital .............................................................. 275,270 275,270
(Accumulated deficit) ................................................................... (149,123) (138,767)
--------- ---------
126,346 136,702
Less receivable from Employee Stock Ownership Trust ..................................... 39,221 47,721
Less treasury stock, at cost, including 1,345 common shares at June 30, 1996
and 1,345 (unaudited) common shares at September 30, 1996 ............................ 8 8
--------- ---------
Total shareholders' equity ......................................................... 87,117 88,973
Commitments and contingencies (notes 4 and 5) ........................................... -- --
--------- ---------
$ 644,394 $ 640,577
========= =========
<FN>
* Condensed from audited consolidated financial statements.
</TABLE>
See accompanying notes to condensed consolidated financial statements
Page 3 of 13
<PAGE> 4
REPUBLIC ENGINEERED STEELS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net loss ............................................................... $(10,355) $ (4,779)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization .......................................... 7,276 4,825
Non-cash ESOP charges .................................................. 7,928 8,191
Deferred income tax benefit ............................................ (6,903) (3,186)
Change in operating assets and liabilities
(Increase) decrease in working capital ............................... 4,696 (11,119)
Decrease in other operating assets and liabilities ................... 2,378 2,576
-------- --------
Total Adjustments .............................................. 15,375 1,287
-------- --------
Net cash provided by (used in) operating activities ............ 5,020 (3,492)
-------- --------
Cash flows from investing activities
Additions to property, plant and equipment ............................. (1,040) (21,217)
Capitalized interest ................................................... -- (4,126)
-------- --------
Net cash used in investing activities .......................... (1,040) (25,343)
-------- --------
Cash flows from financing activities
Borrowings under revolving credit facility ............................. 3,296 24,000
Other financing activities ............................................. 181 2,660
-------- --------
Net cash provided by financing activities ...................... 3,477 26,660
-------- --------
Net increase (decrease) in cash and cash equivalents ..................... 7,457 (2,175)
Cash and cash equivalents at beginning of period .......................... 2,074 4,609
-------- --------
Cash and cash equivalents at end of period ................................ $ 9,531 $ 2,434
======== ========
Supplemental disclosure of cash flow information
Interest paid (net of amount capitalized) ............................. $ 359 $ 272
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 4 of 13
<PAGE> 5
REPUBLIC ENGINEERED STEELS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 (UNAUDITED) AND JUNE 30, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) FINANCIAL STATEMENT PRESENTATION:
The consolidated interim financial statements presented herein have
been prepared by Republic Engineered Steels, Inc. (the "Company"), without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission with respect to Form 10-Q. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations; however, the Company believes that all
adjustments necessary for a fair presentation have been made. These interim
financial statements should be read in conjunction with the financial statements
and the notes thereto included in the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1996.
(B) ORGANIZATION
On April 28, 1995, Republic Engineered Steels, Inc. ("Republic" or the
"Company") issued 8,050,000 shares of its common stock in an Initial Public
Offering (IPO). Prior to the IPO, the Company was owned by substantially all of
its employees through an Employee Stock Ownership Plan (ESOP). The ESOP acquired
all of the originally issued common shares of the Company on November 28, 1989
with the proceeds of two loans from the Company in the amounts of $190,000 (Loan
A) and $30,000 (Loan B), respectively, each bearing interest at 10 percent per
annum. The ESOP obtains the funds to repay the loans primarily through tax
deductible contributions made by the Company to the ESOP based on annual
stipulated percentages of employee compensation or dividends. The ESOP is
repaying Loan A and Loan B (plus interest) over their respective maturity
periods. Subsequent to the IPO, the ESOP owns approximately 58 percent of the
common stock of the Company.
The company produces a wide range of special bar quality (SBQ)
hot-rolled and cold-finished steels and specialty steel bars for the
automotive, heavy equipment manufacturing, aerospace, and power generation
industries.
The Company's principal customers are manufacturers in the automotive,
machinery, industrial equipment, machine and hand tools, and aviation and
aerospace industries, as well as independent forgers who supply finished parts
to the aforementioned industries. The Company also has significant sales to
steel service centers.
Although the Company has a nationwide customer base, approximately 67
percent of its shipments for fiscal year 1996 were to customers in the states of
Indiana, Illinois, Michigan, New York, Ohio and Pennsylvania.
(C) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Republic
Engineered Steels, Inc. and its wholly owned subsidiaries, Nimishillen &
Tuscarawas Railway Company and The Oberlin Insurance Company. All significant
intercompany balances have been eliminated in consolidation.
Page 5 of 13
<PAGE> 6
(D) CASH EQUIVALENTS
The Company considers all short-term investments with maturities at
date of purchase of three months or less to be cash equivalents.
(E) INVENTORIES
Inventories are carried at the lower of cost or market, with cost
determined using the last-in, first-out (LIFO) method.
(F) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost less depreciation
accumulated to date. Depreciation is computed on the straight-line method over
the estimated useful lives of the assets; the range of useful lives is 15-25
years for buildings and 3-25 years for machinery and equipment. Accelerated
methods are used for income tax purposes.
(G) INTANGIBLES
Intangible assets consist primarily of deferred loan and bond fees and
intangible pension assets. The deferred loan and bond fees are being amortized
on a straight-line basis over the lives of the related debt instruments and the
pension asset is being amortized over the workforce's estimated remaining years
of service.
(H) INCOME TAXES
The Company accounts for income taxes pursuant to the asset and
liability method. Under that method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled, and
the effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(I) ENVIRONMENTAL COSTS
The Company and other basic steel companies have in recent years become
subject to increasingly demanding environmental standards imposed by federal,
state and local environmental laws and regulations. It is the policy of the
Company to endeavor to comply with applicable environmental laws and
regulations. The Company establishes a liability for an amount which the Company
believes is adequate, based on information currently available, to cover the
costs of remedial actions it will likely be required to take to comply with
existing environmental laws and regulations.
The stated amount represents an estimate of the environmental
remediation costs associated with future events triggering or confirming the
costs that, in management's judgment, are likely to occur. This estimate is
based on currently available facts, existing technology, and presently enacted
laws and regulations, and it takes into consideration the likely effects of
inflation and other societal and economic factors. The precise timing of such
events cannot be reliably determined at this time due to absence of any
deadlines for remediation under the applicable environmental laws and
regulations pursuant to which such remediation costs will be expended. No claims
for recovery are netted against the stated amount.
(J) NET LOSS PER COMMON SHARE
The net loss per common share computations are based upon the weighted
average number of shares of common stock equivalents outstanding during each
fiscal year.
Page 6 of 13
<PAGE> 7
(2) INVENTORIES
Inventories are carried at the lower of cost or market with cost
determined using the last-in, first-out (LIFO) method.
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1996
------------- --------
(UNAUDITED)
<S> <C> <C>
Raw materials ...................................................... $ 10,339 $ 10,401
Finished and semifinished product .................................. 153,092 150,711
Supplies, molds, and stools ........................................ 1,666 2,314
-------- --------
$165,097 $163,426
======== ========
</TABLE>
(3) LONG-TERM DEBT
Long-term debt of the Company consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1996
------------- --------
(UNAUDITED)
<C> <C> <C>
9% Solid Waste Revenue Bonds, Series 1996, due June 1, 2021 ........ $ 53,700 $ 53,700
8 1/4% Solid Waste Revenue Bonds due October 1, 2014 ............... $20,200 $ 20,200
9 7/8% First Mortgage Notes due December 15, 2001 .................. 200,000 200,000
Revolving Credit Agreement ......................................... 10,300 7,000
Other .............................................................. 52 56
-------- --------
284,252 280,956
Less Current Maturities of Long-term debt .......................... -- --
-------- --------
$284,252 $280,956
======== ========
</TABLE>
On October 28, 1994, the Company obtained $20.2 million of financing
through the issuance of 8 1/4 percent Solid Waste Revenue Bonds due October 1,
2014 (Bonds) in connection with the solid waste disposal facilities installed at
the Cast-Roll facility. On June 1, 1996, the Company obtained $53,700 of
financing through the issuance of 9 percent Solid Waste Revenue Bonds, Series
1996, due June 1, 2021 in connection with the solid waste disposal facilities
installed at its Cast-Roll facility. These bonds were issued in addition to the
Solid Waste Revenue Bonds, Series 1994, noted above, to assist in financing the
facilities. As of September 30, 1996, the Company had available $2,279 of the
$53,700, which is classified as long-term restricted cash in the accompanying
consolidated balance sheet.
On December 15, 1993, the Company issued $200 million aggregate
principal amount of 97/8% First Mortgage Notes due December 15, 2001 (the
"Notes") in an underwritten public offering. The Notes are redeemable, in whole
or in part, at the option of the Company, on or after December 15, 1998 at
specified premiums set forth therein which decline over three years. At any time
before December 15, 1996, the Company may redeem the Notes with the proceeds of
a public offering of its common stock at a redemption price of 109 7/8% of the
principal amount thereof plus accrued interest provided that at least $140
million aggregate principal amount remains outstanding after the redemption. The
Notes are secured by a mortgage on the Company's property, plant and equipment
at December 15, 1993. The Notes contain affirmative and negative covenants,
including provisions for restrictions on additional
Page 7 of 13
<PAGE> 8
borrowings, investments, payments, the sale or disposal of assets, payment of
dividends and liens, as well as change of control provisions.
The Company's $90 million revolving credit facility has a four-year
term expiring in December 1997. As of September 30, 1996 and June 30, 1996,
$79.7 million (unaudited) and $83 million respectively of the credit facility
remained available. The facility is secured by the Company's receivables,
inventories, subsidiaries' stock, short-term investments, and certain intangible
assets. Advances under the facility are limited to specified percentages of the
Company's eligible receivables and inventories.
The Company has $10.3 million under the Credit Agreement due to be
repaid in fiscal 1998. Otherwise, no long-term debt matures during the next five
years.
(4) ENVIRONMENTAL COMPLIANCE
The Company is subject to a broad range of federal, state and local
environmental laws and regulations, including those governing discharges into
the air and water, the handling and disposal of solid and hazardous wastes and
the remediation of contamination associated with the disposal of waste. The
Company continuously monitors its compliance with such environmental laws and
regulations and, accordingly, believes that it is currently in substantial
compliance with such laws and regulations. The Company does not anticipate the
need to make material expenditures for environmental control measures during the
next twenty-four months. As is the case with most steel producers, the Company
could possibly incur significant costs related to environmental compliance, in
particular those arising from remediation costs for historical waste disposal
practices at certain facilities. The Company believes that these costs are most
likely to be in the range of $13 million to $27 million. This range represents
the estimated aggregate cost to resolve the environmental contingencies. The
Company does not anticipate any third party recoveries. The reserve to cover
potential environmental liabilities was $19.4. million (unaudited) at September
30, 1996 and $20.0 million at June 30, 1996.
The reserve has been established and is monitored based on continuing
reviews of the reserve, each matter comprising the reserve, and whether any new
matters should be included in the reserve, using currently available information
relative to enacted laws and regulations and existing technology. These reviews
are performed periodically by an in-house committee comprised of representatives
experienced in environmental matters from the environmental, law, operating, and
accounting departments in consultation with outside legal and technical experts,
as necessary.
(5) LEGAL PROCEEDINGS
In September 1992, a lawsuit was filed against the Company in the U.S.
District Court for the Northern District of Ohio (Eastern Division) on behalf of
nineteen former Company salaried employees whose employment was terminated on
February 19, 1991. The claims asserted on behalf of each former employee are age
discrimination under both federal and state laws, breach of employment contract,
promissory estoppel and violation of Ohio public policy (by reason of age
discrimination). The relief sought for each former employee is lost pay and
fringe benefits, liquidated damages (doubling the claimed lost pay and
benefits), compensatory damages of $500,000 on each count, punitive damages of
$500,000 under the public policy count, prejudgment interest and attorneys'
fees. The Company has denied all of the claims and intends to contest them
vigorously. The Company's motion for summary judgment with respect to these
cases was partially granted on May 15, 1996, dismissing all claims of the former
employees other than the age discrimination claims. Management does not believe
that the remaining claims will have a material adverse effect upon the Company.
Page 8 of 13
<PAGE> 9
The Company is involved in other legal proceedings, including various
environmental proceedings with governmental authorities, product liability
litigation and claims by present and former employees under federal and
counterpart state anti-discrimination and other laws relating to employment. The
Company does not believe that any of these proceedings, either individually or
in the aggregate, will have a material adverse effect on the financial condition
or results of operations of the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1995
The Company's financial performance in the first quarter of fiscal
year 1997 was significantly affected by falling prices without a corresponding
decrease in operating costs even though the direct cost of operating the
Cast-Roll(TM) facility improved. During that period, 45% of semi-finished
carbon and alloy steel products manufactured by the Company were produced at
the Cast-Roll(TM) facility which represents approximately 59% of the facility's
capacity. Further improvement in facility utilization is expected to occur in
the 2nd and 3rd fiscal quarters of 1997.
Net sales for the first quarter of fiscal year 1997 totaled
approximately $183.4 million on 234,712 net tons of steel shipments compared to
approximately $183.0 million and shipments of 219,877 net tons for the year
earlier period. Despite the 6.7% increase in shipping volume, sales revenues
remained relatively flat. The company's average selling price per ton fell by
6.1% to $781 per ton versus $832 per ton for the year earlier period as a result
of a lower percentage of shipments of value added cold finished products coupled
with downward price pressure created by the potential for new entrants into the
SBQ market, a softening economy in the steel sector generally and slackening
demand for many of the Company's products, particularly value added cold
finished products, although sales of certain hot rolled products increased
substantially from the year ago period.
Cost of products sold increased by 3.6% to $170.5 million versus $164.7
million for the year earlier quarter. The increase is the result of higher
production levels and a $2.5 million increase in depreciation charges associated
with the Cast-Roll(TM) facility. Scrap costs increased slightly, representing
24.6% of total cost of goods sold compared to 24.2% in the year ago quarter
while costs for other raw materials decreased from 11.9% of total cost of goods
sold to 11.1% for the current quarter. This decrease is the result of lower
prices, particularly for nickel and molybdenum. Overall, on a cost per ton
shipped basis, manufacturing costs decreased from $749 per ton to $727 per ton
in the current quarter, or approximately 3 percent despite a $10 per ton
increase in depreciation charges related to the Cast-Roll(TM) facility.
Additionally, various initiatives were undertaken to redeploy the workforce
which resulted in lower labor utilization despite the increased shipping level.
Selling, general and administrative expenses decreased to approximately
$11.5 million from approximately $11.9 million for the first quarter of fiscal
year 1997 versus the year earlier quarter, and represent approximately 6.3% and
6.5% of sales revenue for the first quarter 1997 and 1996, respectively.
Net periodic postretirement benefit charges accrued totaled
approximately $4.3 million for the quarter ended September 30, 1996, an increase
of approximately $.2 million versus the same quarter one year earlier. The
increase is a reflection of additional service cost and interest cost related to
the unfunded liability.
Page 9 of 13
<PAGE> 10
Non-cash ESOP charges totaled approximately $7.9 million versus $8.2
million in the year ago quarter. The charges are based on a contribution rate of
18% of employee compensation for both periods and the decreased charge for the
current period reflects lower labor utilization despite the increased shipment
level.
Cash interest expense totaled approximately $6.7 million for the first
quarter of fiscal year 1997, unchanged from the year earlier quarter. In the
first quarter of fiscal year 1996, the Company recorded a $4.1 million credit
for capitalized interest associated with the construction of the Cast-Roll(TM)
facility. Effective January 1, 1996, the new facility was substantially complete
and operational, and accordingly, interest is no longer being capitalized.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments as of September 30, 1996 totaled $9.5
million compared to $2.1 million as of June 30, 1996. The increase is primarily
the result of an abnormally large cash collection from customers at the end of
September 1996 which was used in early October 1996 to reduce borrowings under
the Company's $90 million revolving credit agreement with the First National
Bank of Boston (the "Revolving Credit Agreement").
On December 15, 1993, the Company issued $200 million aggregate
principal amount of 9 7/8 percent First Mortgage Notes due December 15, 2001
(Notes) in an underwritten public offering. The Notes are redeemable, in whole
or in part, at the option of the Company, on or after December 15, 1998 at
specified premiums set forth therein which decline over three years. At any time
before December 15, 1996, the Company may redeem a portion of the Notes with the
proceeds of a public offering of its common stock at a redemption price of
1097/8 percent of the principal amount thereof plus accrued interest provided
that at least $140 million aggregate principal amount remains outstanding. The
Notes are secured by a mortgage on substantially all of the Company's property,
plant and equipment as of December 15, 1993. Capital expenditures subsequent to
that date for plant and equipment (including the Cast-Roll(TM) facility)
aggregating approximately $238.6 million are not part of the security for the
Notes. The Notes contain affirmative and negative covenants including provisions
for restrictions on additional borrowings, certain investments, certain
payments, sale or disposal of assets, payment of dividends and liens, as well as
change of control provisions.
On October 28, 1994, the Ohio Water Development Authority ("the
Authority") issued $20.2 million of 8 1/4 percent Solid Waste Revenue Bonds (the
"1994 Bonds") due 2014, on behalf of the State of Ohio, at 98% of the face
amount in connection with the solid waste disposal facilities installed at the
Cast-Roll(TM) facility. Additionally, on June 1, 1996, the Authority issued
$53.7 million of 9.0% Solid Waste Revenue Bonds (the "1996 Bonds") due June 1,
2021 in connection with the Cast-Roll(TM) facility. The proceeds of the 1996
Bonds were used to reduce outstanding borrowings under the Revolving Credit
Facility. The Company had available $2.28 million and $2.25 million as of
September 30 and June 30, 1996, respectively, from the 1996 Bonds which is
classified as restricted cash in the accompanying consolidated balance sheet,
and zero from the 1994 Bonds.
The Revolving Credit Agreement, which expires in December 1997, is
secured by the Company's receivables, inventories, subsidiaries' stock,
short-term investments, and certain intangible assets. Advances under the
facility are limited to specified percentages of the Company's eligible
receivables and inventories. As of September 30, 1996, the Company had $10.3
million outstanding under its Revolving Credit Agreement, which borrowings are
due in December 1997. Otherwise, no long-term debt matures during the next five
years.
Page 10 of 13
<PAGE> 11
The Revolving Credit Agreement provides up to $20 million for letters
of credit. Borrowings under the Revolving Credit Agreement bear interest at a
per annum rate equal to the Eurodollar rate plus 2 1/2 percent or the Alternate
Base Rate plus 1 1/4 percent of the First National Bank of Boston ("FNBB"), at
the Company's option. These rates increase by 2 percent if the Company does not
meet certain financial tests. The borrowing base under the Credit Agreement is
the sum of 53 percent of "Eligible Inventory" up to a maximum of $75 million and
80 percent of "Eligible Accounts Receivable." Fees of 2 1/2 percent per annum on
the maximum drawing amount of each standby letter of credit and 2 percent per
annum on the maximum drawing amount of each documentary letter of credit are
payable on the date of issuance of such letter of credit. A commitment fee of
1/2 percent per annum on the average daily unused amount of the facility is
payable quarterly.
The Revolving Credit Agreement contains affirmative and negative
covenants including provisions for the maintenance of increasing levels of
consolidated net worth, requirements for minimum coverage of interest and debt
service, restrictions on additional borrowings, capital expenditures, certain
investments, stock issuances, and the payment of dividends.
The Company believes that cash on hand, cash flow from operations and
borrowings under the Revolving Credit Agreement will be sufficient to meet its
cash needs in the foreseeable future.
Forward looking statements herein are made pursuant to safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such forward
looking statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from those projected. Readers are
cautioned not to place undue reliance on these forward looking statements which
speak only as of the date hereof. Such risks and uncertainties include, but are
not limited to, general business and economic conditions; competitive factors
such as the availability and pricing of steel, fluctuations in demand,
specifically in the automotive market; potential equipment malfunction; and
construction and repair delays.
Page 11 of 13
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Item 1, Financial Statements, footnote (5) Legal Proceedings.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held on
October 23, 1996. The only matter voted upon was the election of seven
directors. Set forth below is information with respect to the nominees
elected as directors of the Company at the Annual Meeting of
Stockholders and the votes cast and/or withheld with respect to each
such nominee.
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
James B. Riley 16,064,503 shares 2,381,884 shares
Stephen S. Higley 16,076,015 shares 2,370,372 shares
Sam Camens 16,392,923 shares 2,053,464 shares
Martin J. Manley 16,448,283 shares 1,998,104 shares
Walter C. Meck 16,404,435 shares 2,041,952 shares
Gary E. Lenhart 16,222,548 shares 2,223,839 shares
Rudy Kogut 16,357,892 shares 2,088,495 shares
</TABLE>
Each of the nominees listed above received a plurality of the
votes cast at the Annual Meeting of Stockholders. There were no broker
non votes with respect to the election of directors.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
Report on Form 8-K filed October 2, 1996 in respect of a Press Release
issued by the Company on September 30, 1996 containing the company's
comments on industry conditions.
Page 12 of 13
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REPUBLIC ENGINEERED STEELS, INC.
By: /s/ Russell W. Maier
----------------------------
Russell W. Maier
President
and Chief Executive Officer
By: /s/ James Burns Riley
----------------------------
James Burns Riley
Executive Vice President
and Chief Financial Officer
(Chief Accounting Officer)
Dated: November 12, 1996
Page 13 of 13
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 9,531
<SECURITIES> 0
<RECEIVABLES> 72,653
<ALLOWANCES> 1,635
<INVENTORY> 165,097
<CURRENT-ASSETS> 257,640
<PP&E> 324,264
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<CURRENT-LIABILITIES> 112,503
<BONDS> 273,956
<COMMON> 197
0
2
<OTHER-SE> 86,918
<TOTAL-LIABILITY-AND-EQUITY> 644,394
<SALES> 183,421
<TOTAL-REVENUES> 183,421
<CGS> 170,519
<TOTAL-COSTS> 170,519
<OTHER-EXPENSES> 23,613
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,547
<INCOME-PRETAX> (17,258)
<INCOME-TAX> (6,903)
<INCOME-CONTINUING> (10,355)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,355)
<EPS-PRIMARY> (.53)
<EPS-DILUTED> (.53)
</TABLE>
